Mexico’s big oil problem

The number of wells drilled in the U.S. Gulf of Mexico and the Eagle Ford shale in Texas is “hundreds to one” when compared to the Mexican side

Mexico, one of the largest suppliers of oil to the United States, has a big problem: Its production of crude is falling fast, reports Steve Hargreaves at CNN Money. Indeed, the reports shows the stultifying effects of nationalisation on an industry, similar to what is happening in Argentina.

“In 2008, the country’s production peaked at 3.2 million barrels a day, according to the U.S. Energy Information Administration. Last year, it didn’t even produce 3 million a day.

The reason: aging oil fields and years of underinvestment.

Industry experts say Mexico could revive production if it allowed more investment from international oil companies. But under current policy, EIA says Mexico will have to start importing oil by 2020.

For the United States, the decline in Mexico’s oil industry means it will likely be buying more oil from Canada and Saudi Arabia, the No. 1 and No. 2 sources of U.S. oil imports. Mexico is now third.

And because oil is a global market, any drop in production one place could mean higher prices worldwide.

“The loss of Mexico’s current exports of about 1 million barrels a day would be greater than the amount lost due to sanctions on Iran – albeit over a longer time period.

“Many experts blame the structure of Mexico’s oil industry for the decline.

“Mexico nationalized its oil industry in 1938. Since then companies such asExxon Mobil (XOMFortune 500), Royal Dutch Shell (RDSA) and BP(BP) have been prohibited from taking a meaningful stake in the country’s oil operations. The state oil giant, Petroleos Mexicanos, or PEMEX, has run the show.

“PEMEX is one of the largest companies in the world, and provides the Mexican government with 32% of its revenues, according to the EIA.

“But oil exploration requires big investments and Mexican lawmakers have long resisted giving the firm the money it needs to go out and find new sources of crude.”

Via Powerline, where Steven Hayward says: “The problem is underinvestment, and the refusal of Mexico’s government-owned oil industry (PEMEX) to allow foreign oil companies to enter the market in joint ventures.  Oil industry experts have been watching the Mexican foolishness for many years; as one industry watcher put it to me about five year ago, ‘Someday, when they pump the last barrel out, someone at PEMEX will pull out an old phonograph, and spin up a scratchy LP of Sinatra singing, I Did It My Way!’”

“But this has consequences as Mexico is one of the largest foreign suppliers of oil to the U.S., and if they lived up to their potential, could be an important part of making North America the world’s new hydrocarbon energy center.  Maybe when the government revenues from oil dry up enough they’ll change their mind.”

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Argentina’s first national strike pressures Fernandez on taxes

Self-inflicted wounds caused by unfortunate policy decisions

Argentina President Cristina Fernandez de Kirchner’s efforts to prop up her country’s flagging economy through a combination of nationalisation, socialism and intimidation are showing signs of faltering. According to a Bloomberg article today, the Argentine economy has slowed dramatically from 8.9 percent expansion last year to a pace of 2.75 this year.

In May the report says industrial production fell for a second straight month as auto output dropped 24 percent. Consumer confidence slid 4.4 percent in June, according to Buenos Aires-based Torcuato Di Tella University. Consumer prices rose 23.5 percent in May from a year earlier, according to private estimates, compared with the 9.9 percent reported by the national statistics agency.

In April the Argentine president nationalised YPF, a Spain-based oil company, with the hopes of using its profits to bolster a sagging economy. That move was among a number of nationalisation schemes introduced by Fernandez, that have worried investors and foreign governments, the DailyEnergyDump reported on April 17. For more on Argentina’s energy moves over the last two months click here for our archives.

To get a sense of the moves and results some of Argentina’s presidential actions have produced this May article in the Economist is good:

“Among the first moves Néstor Kirchner, Ms Fernández’s late husband, made on becoming president in 2003 was the renationalisation of Correo Argentino, the country’s postal service. At the time this was seen as a swipe at Grupo Macri, the concession holder, because the son of its boss had become an opposition politician. It turned out to be the start of a trend: Kirchner later took over the railways, a radio-spectrum operator, a shipyard and a water company. Since succeeding him in 2007, Ms Fernández has netted bigger fish: before grabbing YPF last month, she had expropriated Argentina’s private pension funds and its flagship airline.

“Under public control, the financial results of these firms range from mediocre to dismal. In the past year the government has spent nearly $3 billion to prop them up, and the official budget suggests that figure will double in 2012. AySA, the water company, and Aerolíneas Argentinas, the airline, have been particularly needy: they cost the state $972m and $840m last year. Though the firms lost money in private hands as well, their former owners say they struggled only because regulators subjected them to strict price controls.”

Today’s Bloomberg news story shows the spiraling that these types of decisions produce on a country that is scaring away investors and pushing much-needed capital to take flight.

“Argentina’s biggest unions are holding their first national strike against President Cristina Fernandez de Kirchner as slowing growth and 24 percent inflation undermine the government’s ties to its labor supporters.

“Hugo Moyano, head of the country’s largest labor confederation, known as the CGT, called on workers to strike today to seek a rise in the threshold for income tax payments after salary increases pushed them into a higher tax bracket. Fernandez rejected Moyano’s request yesterday, saying that only 19 percent of workers pay the tax.

“The strike comes as the government, blocked from international credit markets since a 2001 default, resorts to import restrictions and tighter oversight of the foreign currency market to stem capital flight and bolster central bank reserves. Argentina’s budget surplus excluding interest payments fell to 2.4 billion peso ($530 million) in May from 3.1 billion pesos a year earlier. [...]

“Today’s strike comes a week after truck drivers halted work and caused fuel shortages throughout the country, forcing Fernandez to return earlier than planned from the Rio+20 summit in Rio de Janeiro. The strike ended after truckers signed a 25.5 percent wage increase for the year starting July 1. A separate strike by oil workers in Chubut province is crimping output by Pan American Energy LLC, owned by BP Plc. (BP/)


Can YPF avoid the grim fate of other nationalised companies?

Can YPF avoid the grim fate of other nationalised companies?

In an article titled “So far, not so good,” the Economist dives into the turmoil created when Argentina’s President Cristina Fernández and its Congress nationalised YPF, the local subsidiary of Spain-based Repsol, and seeks to divine what will come next. The attempt to bring an industrial powerhouse under government control was heralded by Argentine’s, according to the piece published on May 12, and a recent poll found that 62 percent of Argentines supported the confiscation.

But if past performance is an indicator of future results, then it’s unlikely this story will end well, and Argentine’s and their country will be poorer for it.

“Among the first moves Néstor Kirchner, Ms Fernández’s late husband, made on becoming president in 2003 was the renationalisation of Correo Argentino, the country’s postal service. At the time this was seen as a swipe at Grupo Macri, the concession holder, because the son of its boss had become an opposition politician. It turned out to be the start of a trend: Kirchner later took over the railways, a radio-spectrum operator, a shipyard and a water company. Since succeeding him in 2007, Ms Fernández has netted bigger fish: before grabbing YPF last month, she had expropriated Argentina’s private pension funds and its flagship airline.

“Under public control, the financial results of these firms range from mediocre to dismal. In the past year the government has spent nearly $3 billion to prop them up, and the official budget suggests that figure will double in 2012. AySA, the water company, and Aerolíneas Argentinas, the airline, have been particularly needy: they cost the state $972m and $840m last year. Though the firms lost money in private hands as well, their former owners say they struggled only because regulators subjected them to strict price controls.”

More on the backstory of Argentina’s nationalisation of YPF from the Daily Energy Dump archives here.


Argentina’s seizure of YPF may come back to hurt country’s energy ambitions

Argentina’s seizure of YPF may come back to hurt country’s energy ambitions

The International Energy Agency oil market reports that Argentina’s heavy-handed nationalisation of YPF, the subsidiary of the Spain-based oil company Repsol, could backfire by scaring away the needed investors to make drilling possible, according to an article by Pierre Bertrand at the International Business Times.

“The decision to expropriate Repsol’s share, rather than taking control of the share through the open market, is bound to negatively influence foreign investors’ decisions in Argentina. Looking forward, Argentina will need continued investment and an improved regulatory framework to turn resources into reserves,” said the IEA report.


Repsol details cost of YPF nationalisation

Repsol details cost of YPF nationalisation

The BBC reports that despite Argentina nationalising Spain-based oil company Repsol subsidiary YPF, the company’s net profit was up 643 million euros, because of rising oil prices and growth in its liquefied natural gas business. That is less than Repsol’s first quarter net profit when YPF is included — 792m euros ($1.026bn; £637m), up 3.5 percent from a year earlier. Additionally, Repsol continues to explore legal challenges to Argentina’s move, the BBC said.

However, now that Argentina has nationalised YPF it must make the necessary investments in the Vaca Muerta play to make the takeover worthwhile for the country, some $3 billion would be required over the next three years to get the shale gas extraction started, according to the BBC’s Vladimir Hernandez. That poses a dillema for the economically underperforming South American country.

“According to Repsol, more could be achieved with more investment. The firm insists that some $25bn per year would be needed to exploit Vaca Muerta’s shale oil and gas potential. This, the company believes, could double the Argentine production in 10 years,” writes Hernandes. “But this would require some 3,000 shale oil and gas wells in an area where there are only 28 at the moment.

“Without Repsol, the government might well look to other foreign investors for help to make it happen. But Daniel Kokogian, a geologist who works as an advisor for several foreign energy companies in Argentina, said some companies would be concerned about how they might be treated in the future, following the renationalisation of YPF.”

More on Argentina’s nationalisation of YPF and the stand off with Repsol here at the Daily Energy Dump.


Repsol YPF said to cut gas shipment on Argentina noncompliance

Repsol YPF said to cut gas shipment on Argentina noncompliance

Repsol YPF SA (REP) blocked a shipment of liquefied natural gas to Argentina because the government failed to supply the Madrid-based company with a letter of credit, Matt Craze reports for Bloomberg.

Spain’s largest oil company diverted the course of the vessel on April 27 after the letter failed to arrive, said the person, who asked not to be identified because Repsol hasn’t made details of the shipment publicly available. Repsol requires the letter of credit for shipments after Argentina defaulted on $95 billion in debt in 2001, the person said. YPF, Repsol’s Argentine unit, anticipated Repsol would block shipments in order to ‘damage’ Argentina after the government seized control of the company this month, YPF said on its website April 28,” according to Craze.


Spain hits back at Argentina over YPF nationalisation

Spain hits back at Argentina over YPF nationalisation

At the New York Times, Raphael Minder reports from Madrid that Repsol has taken it’s first stab at retaliation against Argentina for seizing control of Repsol’s South American subsidiary YPF.

“Soraya Sáenz de Santamaría, the deputy prime minister, said Spain would seek to use Spanish and European biofuel instead of that of Argentina, which is the biggest exporter of biofuel to Spain. Madrid imports almost three-quarters of all its biofuel, with shipments from Argentina worth about €750 million, or $991 million, last year. Still, the measure fell short of the kind of hard-hitting sanctions that had been threatened by Spain. Several government ministers warned in recent days that Argentina’s decision was an act of aggression against Spain and would not go unpunished,” Minder reported.


Repsol warns potential YPF investors of lawsuits

Repsol warns potential YPF investors of lawsuits

Reuters reports that Spain-basd oil major Repsol warned of legal action against companies that invest in YPF, it’s Argentine-based subsidiary that was nationalised lsat week by Argentina’s president Cristina Fernandez.

“Argentine Planning Minister Julio De Vido approached Brazil’s state-run oil company Petrobras over investment in YPF last week.

“Argentine officials met executives from ConocoPhillips earlier on Monday to discuss potential investments, a Planning Ministry statement said. Company executives left the meeting without talking to reporters,” Reuters said. “Argentina needs hefty foreign investment to help develop its shale gas reserves, the third largest in the world.”

Via Yahoo News


In a change, Mexico reins in its oil monopoly

In a change, Mexico reins in its oil monopoly

Since 1938 when Mexico nationalised foreign-owned oil companies Pemex has stood as perhaps the most powerful entity in the country, and giving its union and government cronies unchecked control. However from reading the linked-to article, one begins to question whether it was all just dumb luck, as now, Pemex’s ability to basic geologic surveys or drill below 10,000 feet — a depth U.S. drillers have been passing for some 15 years — has come into question.

Writing for the New York Times from Coatzintla, Mexico, Elisabeth Malkin says that things really are changing , and maybe for the better. For seven decades, Pemex, Mexico’s state-owned oil monopoly and a mainstay of the government’s revenue, regulated itself — which is a polite way of saying it could do pretty much as it pleased. [...] But in the last few years, that has begun to change. The tiny National Hydrocarbons Commission, created by the Mexican Congress in 2008 to increase regulatory oversight of the company, is proving to be a surprisingly sharp thorn in Pemex’s side.

“The five-member panel of energy specialists, which has a staff of 61 and an annual budget of about $7 million, has begun to confront the company’s executives over where and how they drill for oil. With a raft of new regulations and its own blunt assessments of the practicality of Pemex’s projects, the commission is pushing the company to explain its plans.”


Repsol required to buy Eskenazi YPF stake under 2008 accord

Repsol required to buy Eskenazi YPF stake under 2008 accord

Ben Sills at Bloomberg News reports that a 2008 agreement for Spain-based Repsol requires it to buy back the Eskenzai family’s shares of YPF, the subsidiary that was nationalised by Argentina this week, “in the event  Repsol loses majority control.”

Sills writes: “While the accord also includes an obligation for Repsol to take over loans the family used to buy YPF shares, under certain conditions, the Madrid-based company can be expected to fight a move by the Eskenazis to enforce the accord using a so-called force majeure argument, according to two lawyers familiar with the matter who saw the accord or were briefed on it. [...]

“Repsol would need to prove that Argentina’s seizure of 51 percent its YPF oil company was unavoidable, under the force majeure argument, which can release a party from duties under a contract during unavoidable or inevitable consequences, such as hurricanes, the lawyers said, based on Spanish case law.”


Repsol shareholders hit by YPF seizure

Repsol shareholders hit by YPF seizure

Fox Business News reports via Dow Jones Newswire that Argentina’s nationalisation of YPF, a subsidiary of Repsol on Monday is already affecting Spanish business and economics, creating problems for the country’s teetering economy. 

“Caixabank, along with Repsol’s other two major shareholders, Spanish construction company Sacyr-Vallehermoso SA (SYV.MC) and Mexican state-owned oil firm Pemex, face immediate problems with the valuations of their Repsol stakes, even if they don’t make immediate writedowns.”


Spain vows ‘forceful’ response to Argentine oil move

Spain vows ‘forceful’ response to Argentine oil move

According to France24, Spain followed up the move by Argentine President Cristina Fernandez to nationalise Repsol oil’s subsidiary YPF, by denouncing it as “hostile,” and warning that the Spanish government would take “clear and forceful measures” in response. 

The Argentine president said Monday that it would expropriate the country’s biggest oil company, YPF, controlled by Repsol, allocating a 51-percent stake to the state and to Argentina’s oil-producing provinces. Argentine authorities accuse Repsol YPF of failing to meet commitments linked to oil-drilling in the country, the news story said.

“‘It’s a hostile decision against Repsol, thus against a Spanish business, and thus against Spain,’ said [Spanish] Industry Minister Jose Manuel Soria, speaking at the same news conference.”


Argentina moves to seize control of Repsol’s YPF

Argentina moves to seize control of Repsol’s YPF

According to a Reuters report, Argentina President Cristina Fernandez seeks to seize control of leading energy company YPF, which is controlled by Spain’s Repsol. The plan drew swift warnings from key trade partners and risking the country’s further economic isolation, the story said.

More: “Until recently, YPF had a harmonious relationship with Fernandez, whose increasingly interventionist and off-beat policies infuriate critics. She praised YPF when it found massive resources of shale oil and natural gas in late 2010.

“However, a surging fuel import bill has pushed a widening energy shortfall to the top of her agenda at a time of worsening state finances in Latin America’s No. 3 economy.”

YPF’s market value is $10.6 billion, the report said. The move is among a number of Nationalisation schemes introduced by Fernandez, that have worried investors and foreign governments.

Via DrudgeReport.com


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